Is the Run in EA Stock Just Starting?
Electronic Arts Inc. (NASDAQ:EA), the gaming software specialist, surged today, as Electronic Arts stock hit a 2016 high of more than $73.00 per share. EA stock, which has gained more than 23% since three months ago, has not seen this kind of price level since its heydays in the summer and fall of 2015. Then again, EA has been riding the bull since 2011, when the stock traded at $18.00 per share. But is the run in EA stock coming to a close or just starting?
At this point, analysts at firms like Robert W. Baird, which set its price target for EA stock at $80.00, may have to revise their estimates…upward.
Electronic Arts makes and creates gaming software. The company is responsible for some of the hottest names on the market from The Sims to Need for Speed. (Source: “Electronic Arts Inc. (EA) Rating Reiterated by Robert W. Baird,” The Vista Voice, March 2, 2016.)
Electronic Arts has not rested on its gaming laurels, though. It launched Battlefront, which got some hyperdrive boost from its Star Wars affiliation and the success of that franchise’s latest feature film. Poor reviews from the odd species of Homo sapiens known as “gamers” aside, Battlefront sold like Krispy Kreme donuts on a diet-cheating day.
EA stock investors need not worry about being a gamer or even knowing how to distinguish a knob from a joystick or a console. All investors need to know is that Battlefront sales are well above the 13-million-copy mark. The high sales volume has evidently translated to a strong fiscal quarter and 2015–2016 year for Electronic Arts stock.
But sales of Battlefront weren’t the only product pushing EA’s numbers. The company has also kept selling its sports titles—and quite well at that. In the 12 months ended late last March, EA increased its net profit by 26% to $1.0 billion, despite a revenue decline of three percent to $4.4 billion. In the last quarter, net income even more than doubled to $899 million, while earnings per share came in at $0.50, exceeding analysts’ expectations by $0.08. Quarterly revenue was also better than expected. It rose by 10% to $1.3 billion.
EA’s sports strength includes it having secured licenses straight from the horses’ mouths—horses with names such as the International Football Federation (FIFA), the American Football League (NFL), and the National Hockey League (NHL). Some 54 million players have bought EA sports games, 65% higher year-over-year. (Source: “The force is with EA: Stock spikes thanks to Star Wars,” CNBC, May 10, 2016.)
The secret of EA’s performance may well reside in its ability to secure licenses. That’s how it truly exceeded all sales projections. Recall that EA’s Battlefront alone has sold well, with more than 14 million units. (Source: Ibid.)
And the group plans to continue to benefit from its license agreement with Walt Disney Co (NYSE:DIS), which owns the Star Wars brand. Disney will release Rogue One next December. Lame name aside, it promises to be another blockbuster, which will translate to millions of sales for EA’s related games. As it happens, EA told analysts that it expects at least one Star Wars movie a year from now until 2019 or 2020. (Source: “Star Wars Battlefront 2 Coming in 2017, Annual Releases Will Follow,” US Gamer, May 11, 2016.)
Star Wars is that rare action film with cross-generational appeal. Millennials and generation Xers who watched the first legendary installments in the late ’70s and early ’80s will flock to the next Star Wars installments. Many of these fans will also play the EA-made video games.
All the while, EA will continue to bolster sales of sports-themed games. It recently bought the license to the Ultimate Fighting Championship (UFC) to exploit demand for MMA-themed games.
EA has the tools it needs to exploit the growing demand for gaming and fantasy entertainment—while not abandoning the sports themes that made it famous in the first place. All told, EA stock appears to have more room to run.